The seven lean years scenario is still intact

The was some recent buzz in the blogosphere when Jeffrey Hirsch of the Stock Traders' Alamanac forecast that the Dow would go on an eight-year tear with a target of 38,820 (see the full comment here). Most commentators focused on the maginitude of the gain. Lost in the noise of the forecast was that the start of the bull market would begin in 2017.

I have written about this in the past. A lot of long-term analysis is pointing toward the 2017-8 as the start of a new bull, meaning that we would have to endure seven lean years. On September 7, 2010, I wrote that:

Jeremy Grantham revisited his “seven lean years” scenario in his July quarterly letter. About a year ago, Art Cashin highlighted the 17.6 year stock market cycle, which pointed to a bottom around 2017. I also wrote about an academic study that correlated demographic trends to P/E ratios, which pointed to a long-term bottom around 2018. I also suggested that while markets are likely to be flat longer term, they are going to be volatile and experience huge intermediate term swings.

Now Hirsch has bought a ticket on the 2017 train and that ticket is looking more and more interesting.

In that kind of low-return environment, I would reiterate my thesis that buy-and-hold strategies are likely to disappoint, especially in an era of uncertain equity risk premiums. Investors need to look to new strategies to raise their returns.